New Mexico Insurance Continuing Education
Insurance professionals are subject to state administrative rules and regulations and also to the legal concept of agency. We will cover the role of agency, with its associated topics of power and authority. Remember that an authorized agent has the power and authority to act on behalf of another.
The concept of agency is important to the relationship between an insurance professional and his/her carrier. Questions of agency also arise regarding the relationship between the insurance professional and his/her client. Finally, the relationship between the client and the insurance professional acting as a broker is unique and will also be covered.
Role Distinction
Insurance professionals act in three primary capacities for purposes of the law of agency. They may be captive agents, brokers, or consultants.
Captive agents solicit business on behalf of their particular insurance company. Insurance broker’s act on behalf of individual clients in order to secure needed insurance coverage. Consultants provide advice as to the type of coverage needed to be obtained by a client. For this service they are paid a fee and do not depend on commissions. Throughout this article, we will focus on the captive agent and the broker.
Insurance Agent
The general definition of an agent is one who is appointed by an insurer to solicit applications for a policy of insurance or to negotiate a policy of insurance on the insurer’s behalf. An agent could also be a partnership or corporation. The entity is appointed by the insurer, and receives a written and signed contract from the insurance company. As part of this process, the insurance agent will be licensed in the state where such contracts are to be solicited.
Agency Basics
A valid agency relationship between an insurance professional and an insurance carrier rests on two fundamental principals. These principals are the concepts of power and authority.
The agent receives power to sell insurance on behalf of a carrier through his/her agency agreement. Through this agency agreement the insurance professional is given the power to contractually bind the insurance carrier. This principal of power is extremely broad.
An agent also derives his/her authority from the agency contract. The agency contract usually authorizes the agent to:
• Solicit insurance applications
• Describe the various coverages offered by the insurance carrier.
• Provide service to the company’s policy-owner.
• Collect needed premiums to initiate the insurance coverage.
One must remember that the power and authority granted by the agency agreement is not the same as obtaining a state license.
New Mexico Insurance Continuing Education
Insurance Continuing Education
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